Citigroup Inc: 3 Reasons to Be Bullish on C Stock

Citi Stock Positioned in the Sweet Spot

Citigroup Inc (NYSE:C) is trading near a five-year high. Is it time to bail on C stock? Or is it time to consider ownership?

Well, even though the stock is trading near all-time highs, it is possible for the stock to go even higher. How? Well, this is why it’s important to look at a company beyond just its stock chart.

Below, we will determine if C stock has a place within an income investor’s portfolio.

Valuation

For Citi stock’s valuation, let’s look at the financial metrics of both the company and its industry peers.

Since Citi operates in the financial sector, the price-to-book (P/B) ratio is a great metric to consider before a purchase or sale. The ratio is calculated by dividing the stock’s trading price by the shares’ latest book value (the amount remaining if the business was sold with all debt paid off). A ratio above 1.0 it means that the company is trading above its fair value, while below 1.0 means it is trading at a discount.

The P/B ratio for Citi stock is currently 0.80 times, so it is trading at a 20% discount. In other words, the markets are not placing the current trading price at its fair value.

Citigroup stock also appears cheap compared to its peers, according to its price-to-earnings (P/E) ratio of 12.9 times; the industry average is 16.0. Based on this ratio, Citi stock is trading at 24% discount compared to others in the same business.

Based on these valuations, C stock is worth consideration for an investment opportunity.

Return of Capital

There have been two methods that have been used to reward shareholders. The first is the dividend, which is paid out on a quarterly basis and amounts to a dividend yield of 1.02%. Since 2015, the dividend per share has increased 1,600%.

The second method is share buybacks. By reducing the number of total shares available, investors are left owning more of the company, and therefore a more valuable portion of it. They also benefit from not having to pay taxes on the shares until they choose to sell them. Share repurchase programs tend to last one year and be announced towards the end of June.

I believe there is a high probability of another dividend hike and the share repurchase program being renewed in the coming weeks, going by Citigroup’s very modest payout ratio of 10%.

Future Catalyst

The future of Citigroup is based on the direction of interest rates, which is out of their control; interest rates are set by the U.S. Federal Reserve. Since 2015, the Fed has increased the benchmark interest rate four times, indicating that the U.S. economy is improving and should continue to do so.

The best scenario for Citigroup is the economy growing and interest rates rising. That way, margins start to expand and the financial statements see a positive boost (net interest margins).

At present, the trend of interest rates is on an upward slope. Also note that interest rates are near record levels, meaning the Fed is limited to either keeping the rates flat or increasing them. (Source: “United States Fed Funds Rate,” Trading Economics, last accessed June 20,2017.)

Final Thoughts on Citi Stock

Even though the shares have increased in price, it is not too late to consider owning shares of C stock. Citigroup is positioned in the sweet spot, with a cheap valuation and future growth to look forward to with interest rates on the rise.

This is key information that cannot be found in any stock chart. That’s why it is so important to take a look at the entire company as a whole.

Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners

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